When Active Management Means Many Managers

Article excerpt

Like those amoeba you learned about back in high school science
class, mutual-fund managers are multiplying.

It's not just new managers for new funds. But also co-managers,
multiple managers, managers who are also analysts, and managers of
managers.

The Master's Select Equity fund, for example, has six managers.
The Franklin Templeton Dynatech Fund has two managers, though last
year it had three. The Stein Roe Young Investor Fund has two
managers.

The State Street Research Galileo Fund has at least 14.

"A few years ago, funds were reluctant to admit that they used
more than one manager on a fund," says an analyst with Morningstar
Inc., a financial-services information firm in Chicago. "They didn't
want you to know that the fund had more than one person running the
show.

"Now that has all changed, as the concept of multiple managers
has become popular," she says.

According to Morningstar, some 1,398 single-class equity funds
out of a total of 2,691 single-class funds, or 52 percent of the
total, now have multiple managers. Of the 2,731 single-class
international equity funds tracked by Morningstar, some 1,297, or
roughly 47 percent, have more than one manager.

Reasons for using multiple managers vary. The three most-common
ones:

Diversification Having more than one manager enables a fund to
broaden its portfolio base by using experts familiar with certain
segments, or subsegments, of the market.

Better leadership When manager A is out of town, manager B, or C,
or D can run the show. As a result, investors should sleep better,
knowing there is always someone on the deck of the ship.

Marketing Let's be honest. Some fund companies use multiple
managers "as a marketing gimmick," touting the concept in their
advertising, says the Morningstar analyst.

Perhaps the best-known group to use more than two managers is
Litman/Gregory Fund Advisors, which runs two highly successful
funds: the Masters' Select Equity Fund and the Masters' Select
International Fund.

Both funds are up more than 100 percent since their inception in
the late 1990s, notes John Coughlan, chief operating officer of
Litman/Gregory Fund Advisors, based in Orinda, Calif. …